Until fairly recently, if you owned a life insurance policy that you no longer wanted or needed, you had two choices: surrender the policy for its cash value or allow it to lapse. Now, there is a third option: selling your policy (or the right to receive the death benefit) to an entity other than the insurance company that issued the policy in a transaction known as a life settlement.
The life settlement market emerged as an offshoot of the viatical settlement industry that developed in the 1980s as a source of liquidity for AIDS patients and other terminally ill policyholders with life expectancies of less than two years. Unlike viaticals, however, life settlements involve policyholders who are not terminally ill, but generally have a life expectancy of between two and ten years. Life settlements also tend to involve policies with higher net death benefits than viaticals.
The life settlement market has continued to expand rapidly in recent years. One recent report estimates that existing policies with a collective face value of $11.8 billion were sold by policyholders to investors in 2008.
Areas of Life Insurance
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